Monday, 12 February 2018

Environmental economics

In the current edition of the NBR ($), I remind people that standard mainstream economics textbooks have plenty of ways of dealing with environmental effects. We hardly need to shift to some sustainability-based alternative.

Auckland has congested roads not because of any need to replace mainstream economics with a sustainability-based alternative. Auckland’s congestion problems have rather less to do with failings of economic theory and rather more to do with central government’s refusal to allow Auckland to use mainstream solutions.

The case for better water management also seems clear. When the US had problems with acid rain from excess sulphur dioxide emissions, it implemented a cap-and-trade regime to reduce emissions to sustainable levels. Inefficient plants shut down, others cleaned up and acid rain ended.

I conclude:

Shifting from standard economic models to sustainability-based alternatives risks losing the scale provided by mainstream methods for weighing alternatives, making it too easy to adopt policies that cost the country far more than the value provided.

The political right has framed sound policy addressing externalities as being too costly for economic growth. In doing so, it made it too easy to cast economic growth as the enemy of sustainability.

We need to re-emphasise the parts of the mainstream economic textbooks that are hardly new but are true.